Medicaid is Not a Program. It is Many Programs.

The Expansive Nature of Medicaid

The House of Medicaid has many rooms.  The Congressional Budget Office (CBO) projects that the federal government will spend $8.579 trillion on Medicaid in the ten-year period 2025-2035.[1]  It is no surprise, therefore, that Medicaid has drawn the attention of Congress as it embarks on its journey of producing a 10-year budget reconciliation act.

However, the total cost of Medicaid will be more than $11 trillion as the states collectively finance about 35% of the cost of Medicaid. The Federal Medical Assistance Percentage (FMAP) varies by state according to a formula which is updated annually based on a state’s per capita income averaged over three years compared to the national per capita income.[2] Every state receives at least a match of 50% from the federal government for its Medicaid program.  There is a cap of 83% on the federal match for the “traditional” Medicaid populations. The federal government provides a 90% match rate for the new adult group made eligible under the Affordable Care Act (ACA).

State Flexibility within the Federal Framework

Federal dollars follow state dollars.  States have options within the federal framework regarding eligibility, benefits, service delivery, and financing, which makes New York’s Medicaid program look different from Texas’ Medicaid program.

Medicaid’s Unique Role in Healthcare Coverage

Medicaid is now the second largest single source of health care coverage in the United States.  It differs significantly from the way health insurance works.  For example, no insurance product provides retroactive coverage, but Medicaid will pay for medical bills incurred 90-days prior to eligibility.  The vast majority of its enrollees pay little to nothing for coverage. It pays for Medicare deductibles and copayments for millions of low-income elderly Americans. Medicaid provides coverage to low-income individuals with disabilities while they are waiting for Medicare benefits.

Medicaid’s Broad Reach and Impact

It is a grant to states to provide medical assistance to various eligibility groups. In some states, particularly in the South and poorer states such as West Virginia and New Mexico, about half of all children in a state receive their health care coverage through Medicaid or its companion program, the state Children’s Health Insurance Program (CHIP). Medicaid and CHIP pay for about half of all births in many states. Medicaid provides a financial lifeline to rural hospitals and helps keep the doors of Critical Access Hospitals (CAH) open. It is the largest single-payer for mental health services.

Medicaid as a Major Provider of Long-Term Services and Supports

Medicaid is also the largest single source of payment for long-term services and supports (LTSS), accounting for about half of all LTSS spending in the U.S.  It helps 7.5 million people with disabilities to live in their own homes and communities. It pays for institutional care for another 1.5 million people.[3] In 1967, nearly 200,000 people with intellectual/development disabilities were residents of publicly operated institutions. Forty years later, thanks in large part to Medicaid Home and Community-Based Services (HCBS) waivers, less than 20,000 people with ID/DD resided in public institutions. For millions of Americans, Medicaid provides them with the freedom to live as independently as possible.

Concerns and Scrutiny Surrounding Medicaid

So why is Medicaid a “target” for budget reconciliation? For more than 20 years, the Government Accountability Office (GAO) has placed Medicaid on its “High-Risk Series” Report to Congressional Committees of federal programs that are vulnerable to waste, fraud, and abuse.[4]

Supplemental Payments and Accountability

Medicaid makes billions of dollars in “supplemental” payments to providers not tied to services to individuals with limited accountability for achieving health outcomes. In many states, providers and health plans are required to pay taxes or “quality fees” linked to reimbursement.  States continue to find creative, though permissible, ways to draw more federal dollars without committing general fund revenues.

Medicaid Managed Care and Oversight

Over the past 30 years, States expanded their use of managed care to control costs, increase access to services, and improve the quality of care. The Congressional Budget Office (CBO) estimates that of the $7 trillion in benefits to be paid out by Medicaid in the 2025-2034 baseline, $3.5 trillion will move through Medicaid-managed care plans, the largest of which are publicly traded companies.

The results of Medicaid managed care are mixed. Despite this investment of public funds, many state officials expect better results. Federal law requires payments to health plans to be “actuarially sound.” However, the Centers for Medicare & Medicaid Services (CMS) began to allow “directed payments” from health plans to providers in 2017. These payments are in addition to the rates contractually negotiated between plans and providers. GAO has warned Congress that “directed payments” had grown to at least $38.5 billion in 2022, which appears to be financed through provider taxes rather than state general funds. GAO identified four weaknesses in CMS policies and procedures which “… leave the agency at risk of approving ineffective payments.”[5]

Medicaid’s Evolution and Current Significance

Medicaid is an enigma. Its original purpose when it was created in 1965 was to provide medical assistance to a relatively small number of the elderly, people with disabilities, and children and their parent/caretaker relatives with income significantly below the poverty level. In 1980, Medicaid enrollment had reached 20.8 million people[6], less than 10% of the U.S. population.[7] In 2020, Medicaid enrollment was 78.2 million or 23.6% of the U.S. population.  Medicaid is no longer “only” a federal and state budget matter.  It has become vital to state and local economies as well as to the people it serves.

Citations

• [1] The Budget and Economic Outlook: 2025 to 2035  Table B-4 p. 23
• [2] Federal Register/Vol. 89, No. 230/Friday, November 29, 2024/Notices
• [3] Medicaid Long-Term Services and Supports Use and Expenditures by Service Category, 2019–2021
• [4] Report to Congressional Committees | April 2023
• [5] Report to Congressional Addressees | December 2023
• [6] National health expenditure data | Historical | Table 22.
• [7] Historical Population Change Data (1910-2020)